In a big hindrance to Nigeria’s hope of raising its poor daily oil production, Shell has said it would delay expansion work at its Nigerian offshore Bonga field by another two years.
A report by S&P Global Platts, a financial indices provider, said the development was a major blow to Nigeria’s quest to grow its crude production after a series of technical and operational setbacks, quoting sources close to the project.
In May 2021 Shell, along with its partners, signed a deal with the Nigerian National Petroleum Company Limited (NNPC) in the deepwater oil block Oil Mining Lease 118, clearing the path for a major expansion of the country’s Bonga oil and gas field. The development was previously shelved due to a long-standing tax dispute with Shell, the operator of the field, S&P recalled.
After the resolution of the dispute, Shell once again invited bids for the construction of a new floating production storage and offloading (FPSO) unit for its Bonga Southwest deepwater oil field in Nigeria. However, the response to the tender had been underwhelming, a senior official at NNPC told S&P Global Platts.
“There has been a delay in progressing with the tendering process for the Bonga Southwest field. The tenders have been put on hold till around 2024,” the official was quoted as saying.
A spokesman for the Shell Petroleum Development Company (SPDC), Nigeria, confirmed that the contract award for the construction of the 150,000 bpd Bonga Southwest FPSO had been put on hold.
“The Bonga Southwest has been deferred,” he said, declining to offer further details.
However, sources at NNPC and Shell, the report noted, said delays could be related to a change in Shell’s upstream strategy as part of its net zero ambitions.
Shell is Nigeria’s biggest oil producer, but the oil giant in recent years has complained about some commercial and security issues.
In May 2021, Shell’s Chief Executive Officer, Ben van Beurden, told investors the company was focusing more on its Nigerian deepwater and gas assets after it deemed its onshore oil portfolio in Nigeria, “no longer compatible” with its strategic ambitions, which include a focus on climate change and net zero carbon strategy.
The energy major is currently in talks with the federal government to sell at its onshore oil assets.
Bonga, Nigeria’s first deepwater oil field, currently has the capacity to produce 225,000 bpd of crude oil and 150 MMcf/d of gas which feeds the Nigeria Liquefied Natural Gas (NLNG) plant at Bonny.
Developing Bonga South-west was set to add around one billion barrels to Nigeria’s oil reserves, the report stated.
Shell had previously said it would develop the Bonga South-west project in three phases, with a total potential yield of 3.2 billion barrels.
Output from the field was one of the projects Nigeria was banking on to raise production to around three million bpd by 2023, NNPC officials said.
Nigeria, which produces high quality light sweet crude oil, has seen its production slump to multi-decade lows, due to alleged operational, technical and sabotage issues.
The country has the capacity to pump around 2.2 million bpd of crude and condensate, but in 2021 output languished near 1.55 million b/d, according to Platts estimates.
Developing the Bonga Southwest would cost $10 billion, according to estimates by the NNPC, the concessionaire of the field.
The bulk of Bonga Southwest’s resources are located in OML 118, but it also extends into OMLs 132 and 140, operated by US major Chevron, where it is called Aparo. Other partners in the project are France’s TotalEnergies and Italy’s Eni.
Meanwhile, Shell has joined the ranks of other big oil majors that had recently reported huge profits on higher oil and gas prices, announcing $6.4 billion in net income for the final quarter of 2021.
In addition, earnings for the full year soared to $19.29 billion, up from $4.8 billion for 2020, Shell said, plus a reduction in net debt by $23 billion to $52.6 billion during the period under review.
Before now, data from Shell released last month revealed that oil trading slowed down during the fourth quarter of 2021, but gas trading flourished amid the surge in demand and tight supply of the commodity in some parts of the world.
Chief executive Ben van Beurden said, “2021 was a momentous year for Shell. We launched our Powering Progress strategy and simplified our share structure and organisation.
“Progress made in 2021 will enable us to be bolder and move faster. We have a compelling strategy, with customers at its core. We have ambitious plans to generate shareholder value, to decarbonise our products and to provide energy to our customers while respecting nature.”
Furthermore, Shell said it would buy back another $8.5 billion worth of stocks during the first half of the year and raise dividends yet again, by four per cent for the first quarter of 2022.
The former Anglo-Dutch major, which last year dropped its Dutch headquarters to become a fully British-based company, benefited, like its peers, from higher oil prices. This is despite the fact that it shrunk its core operations after a Dutch court ordered it to sharply reduce its carbon footprint.
In response, Shell sold its assets in the Permian Basin, bringing in $5.5 billion, which it expects to deploy to buy back stock.
